Tuesday, February 19, 2013

Death and Taxes (But Mostly Taxes)

Though you see them every time you make an order, most of the time you probably ignore the minute taxes you're charged each time you make an order. You're probably thinking that these fractions of a percent's worth of taxes aren't something that will amount to too much ISK.

You're wrong.

A post on the EVE forums that I'm far too lazy to look up claimed that with an average profit margin of 10% on each item traded, someone who trades their way from 1 billion ISK to 2 billion ISK will lose 20 billion ISK to taxes. I'm not sure of the validity of this statement (again, I'm far too lazy to do the math) but I wouldn't rule it out completely just yet. Keep in mind that the default tax on each buy order is a 1% broker fee, and the default tax on each sell order is the same broker fee in addition to a 1.5% sales tax, amounting to a 2.5% loss. It might not seem like much, but when you're filling hundreds of both buy and sell orders a day, these numbers add up.

Luckily, two skills come to the rescue. The Broker Relations skill reduces your broker fee by 0.05% per skill level up to a max reduction of 0.25%. This fee applies to both buy and sell orders, so though it might not seem like much, ridding yourself of a 0.5% loss with each item traded makes a significant difference to your income. In addition, the Accounting skill reduces the sales tax you pay with each sell order by 0.15% per skill level, up to a max reduction of 0.75%, resulting in a sales tax of 0.75%. Again, this might not seem significant, but it certainly is.

Skills aren't the only thing that can reduce the taxes you pay when trading. Your standings with the corporation that owns the station within which you're trading also influence the broker fee you're required to pay (unfortunately, the same standings do not influence your sales tax). Having someone run a few missions for that corporation and turn them in with you in fleet is one way to raise your corp standings and therefore reduce your broker fees when trading in that station.

That's all great and all, but now that you know about these standings, how will you know what items are worth trading and what items aren't? An item with a huge volume moved per day but only a 1% margin between sell and buy orders might seem like a great item to trade, but in reality, it'll only shrink your wallet. The formula for calculating this margin is very simple: % paid per buy order / % received per sell order.

For example, let's assume there's a station trader with both Accounting and Broker Relations at level 5. His sales tax is 0.75% and his broker fee is 0.75%. This means that when buying an item, he pays 100.75% of the item's cost to buy it and receives 98.5% of it's price when selling it (100% - 0.75% - 0.75%). 100.75/98.5 = 1.0228. This means that to make a profit off an item after taxes, the raw profit margin on the item needs to be at least 2.28%.

Now let's take a pilot with neither Accounting nor Broker Relations trained. 101.5/97.5 = 1.041. A pilot with both skills untrained needs to trade an item with a minimum raw profit margin of 4.1%. This means that a pilot who trains both skills to level 5 can make profits off of trades that have a raw profit margin almost half the size of a pilot who has neither skill trained.

It goes without saying that this makes a big difference. Though it might not seem like it to an aspiring trader, once you're managing hundreds of items, it tends to get harder to find items with decent profit margins to trade. Training these two skills means that the variety of items you can trade and profit with is greatly increased.

TL;DR: Taxes suck, train Accounting and Broker Relations up if you want to make good money trading.